Agency can help investors cheated by their brokers

Even if your adviser wasn't Bernard Madoff, you might be wondering what action you can take after watching your savings get clobbered. You aren't alone.

Last year, the number of cases filed with the Financial Industry Regulatory Authority jumped 54 percent to 4,982. The nongovernmental agency regulates U.S. securities firms, including online brokerages, and handles arbitration with clients.

Frequently cited examples of misconduct in filings included misrepresentation about investments and unauthorized trading. The number of cases involving mutual funds nearly tripled to 1,069.

Anyone registered with FINRA, including most brokerages and any financial planner who also is a broker, is subject to the agency's arbitration rules. Here's what you need to know about the process:

When to file a claim

One common reason for filing a claim is that your broker knowingly invested your money in a way that was ill-suited for your financial situation.

For instance, retirees living on a fixed income shouldn't have their nest egg in speculative securities. Neither should parents who soon will have college bills or anyone else who can't afford to lose big chunks of money.

"It's really incumbent on the broker to know the customer and their needs and establish an appropriate portfolio," said John Singer, a partner of Singer Deutsch, a securities law firm based in New York.

Other frequent reasons for claims:

• Misrepresentation -- if a broker gives false or incomplete facts about an investment. This typically occurs with riskier securities.

If your losses were the result of the broader market plunge, that alone won't sustain a case. No matter how angry you are, you have to be able to show your losses were the result of misconduct.

How it works

The first steps are hiring an attorney and filing a statement of claim with FINRA, based in Washington, D.C. It doesn't have to be on a special form, but be concise and professional in detailing the dispute. Include relevant names, account numbers and dates.

"It's your first chance to show the arbitrators what your case is about," said Linda Fienberg, president of FINRA dispute resolution.

When naming a defendant, it's probably wiser to seek compensation from a firm rather than an individual broker. Your chances of getting an award from a firm are probably greater, Fienberg said.

What it costs

Taking your broker to arbitration won't be cheap.

First, you need to hire a lawyer. Bigger claims are usually done on a contingency basis, which can be as high as 30 percent of the award, said Constantine Katsoris, a professor at New York's Fordham University Law School who specializes in securities arbitration.

You'll more likely be charged on an hourly basis for claims of $25,000 or less.

The fee for filing a case ranges from $50 to $1,800 depending on the size of the dispute.